Friday, June 6, 2014

While we all consider flying to be a safe form of travel, not all flying is safe. For example, general aviation (small planes) and space shuttles are less safe than commercial airlines. There are principles related to flying an aircraft that relate to how you manage your finances. Some of these principles are as follows:

Altitude - How high you fly.

Lift/Weight - How the wings make you lighter than air

Propulsion - How the engine pushes you forward

See if you can figure out the underlying financial principle.

How high you fly - Altitude

The lowest safe altitude (LSALT) is defined as 1,000 feet about any obstacle or terrain for the planned route. Stunt pilots may like to fly low, but this is dangerous. Obstacles (trees, power-lines, buildings) and terrain (hills, mountains) are unforgiving obstructions. Commercial airlines fly around 35,000 feet.

A common cause of aircraft crashes is CFIT ("see-fit") or Controlled Flight Into Terrain. That's what JFK junior did. Basically its when the pilot doesn't see the mountain they are heading towards or don't realize that they are actually flying into the ground.

Lift/Weight

The shape of the wing is an amazing discovery. As it slices the air, the wing creates lower pressure on top and higher pressure on the bottom to lift the airplane. If there is a pressure change in the air, it changes the lift. This is why turbulence (a mixture of high and low pressure) shakes a plane so much.

The weight of the plane has to be less than the lifting force from the wings in order to get off the ground.

Lift can be increased by changing the size and/or design of the wing.

The Power Plant - Propulsion

The power plant or engine is what propels the aircraft through the air, creating lift from the wings. The more powerful the engine, the greater the lift from the wing. Loss of power will cause the aircraft to lose altitude (fall from the sky). For safety, many aircraft have more than one engine.

The Story

Your flying your aircraft and you decide to fly at 5,000 ft., well above the lowest safe altitude. You hit a pocket of low pressure and quickly drop to 4,000 ft. As you increase your throttle to climb back to 5,000 ft, your engine stalls. You're rapidly losing altitude while you try and restart the engine. You get it restarted but now you are at only 1,500 ft. Still, the engine doesn't have full power, so you have trouble climbing back to safe altitude. You know a mount range is coming up, so you need to climb. You have some heavy cargo that you push out the door. With less weight, your able to climb back to 5,000 ft just in time to navigate a safe route through the mountain.

What does this have to do with money?

Altitude is like your savings (your "nest egg", the result of "saving for a rainy day"). Having $1000 is the lowest safe "altitude". Having $5000 is better. Having $35,000 results in safe travel.

The obstacles and terrain are the late fees, finance charges, interest payments, etc. that kill us when we are in debt (negative altitude or below the ground).

The loss of power that made you quickly lose altitude is the unexpected expense (car repair, doctor bill, etc.). If you lose your savings, it takes time to rebuild it.

The power plant is your income. The engine stalling is like losing your income (job, etc.). It results in you burning through your savings while you try to restart it (find a new job). A weaker engine (smaller income) reduces your ability to climb (save).

The weight is your debt and monthly obligations. The debt load needs to be small enough for your "wings" to overcome it.

The wings are how you manage your money. Even with a small engine (income), you can have high-lift wings that can elevate you to great heights. This means saving more of your monthly income.